Income Tax Appellate Tribunal - Jodhpur
Mangilal Rameshwarlal Soni (Huf) vs Assistant Commissioner Of Income Tax on 19 March, 2004
Equivalent citations: (2004)83TTJ(JODH)770
ORDER
Hari Om Maratha, J.M.
1. These cross appeals are preferred against the order of CIT(A), Jodhpur dt. 4th June, 2001, and pertain to block period from 1987-88 to 1997-98. The grounds raised in both the appeals are inter-woven and arise out of identical set of facts, so these are being disposed of by this common order.
2. Before we come to the real points of controversy, it is desirable to revert to the history of these cases. The Division Bench of this Tribunal decided the appeal of the assessee M/s Mangilal Rameshwarlal Soni (HUF) and the Department by order dt. 27th Feb., 2002. The assessee-firm appealed against this order before Hon'ble Rajasthan High Court under Section 2GOA of the IT Act, 1961 (hereinafter referred to as 'the Act'). The Hon'ble High Court framed the following substantial questions of law:
"(i) Whether, in the facts and circumstances of the case, remission of income on the basis of regular books of accounts found during the search could be sustained with reference to the provisions of Section 145 of the IT Act, 1961, which has been made retrospectively applicable to the block assessment w.e.f. 1st July, 1995, but which provisions were not applicable at the time of making of the block assessment without there being compliance of the requirement of Section 145 before resorting to best judgment assessment?
(ii) Whether in taking resort to the block assessment for the block of 10 assessment years in question, income for the asst. yr. 1997-98, return for which has not fallen due, could be included in the block period for the reason that return for that assessment year has not been filed?
(iii) Whether block assessment made by assessing authority as modified by Tribunal can be sustained in view of the amended Clause (c) of Section 158BB of the IT Act, 1961 as inserted by the Finance Act, 2002 w.e.f. 1st July, 1995?
(iv) Whether in the facts and circumstances of the case, there was any foundation for resorting to best judgment assessment?
3. After hearing the parties the Hon'ble High Court restored the matter in controversy back to the Tribunal by order dt. 16th July, 2003. The operative part of the decision of High Court is reproduced as under:
"It appears that both the parties concurred that the ratio of the decision of the Hon'ble Supreme Court rendered in Shaw Wallace & Co. Ltd. v. CIT (2003) 129 Taxman 542 (SC) applies to the facts of this case" and the Hon'ble High Court gave the following directions to the Tribunal while restoring the matter back to Tribunal:
"In view of the above, we remit the matter back to the Tribunal. The Tribunal is directed to consider the amended provision and to expedite the hearing and dispose of it within three months from the date of receipt of this order and till then no coercive method measure be taken for recovering the tax due on account of that assessment."
4. Now the assessee/appellant has moved an application before us wherein an additional ground, bearing No. 7, has been sought to be permitted to be raised. The ground reads as under:
"That on the facts and circumstances of the case and in law the assessment order passed by the learned AO under Section 158BD of IT Act, 1961 on 28th March, 2001 is barred by limitation as per provisions of Section 158BE(1)(a) and as such the same is liable to be quashed."
5. The learned Authorised Representative Shri U.C. Jain has submitted in relation to the above that the additional ground is a purely legal ground and no further investigation of the facts are required, so in the light of settled principles of law, this ground should be allowed to be raised. The decisions on which the learned Authorised Representative Shri U.C. Jain has relied are:
(i) The Hon'ble Rajasthan High Court in the case of Harish Chandra Golecha (HUF) v. CIT (1981) 132 ITR 806 (Raj) has held that (head note p. 807) :
"If a point of law is implicit in or covered by the question referred to by the Tribunal and no additional facts are necessary to support that point, it may be raised for the first time before the High Court in a reference notwithstanding that it was not raised before or considered by the Tribunal. The expression "question of law arising out of such order" in Section 66 of the Indian IT Act, 1922, cannot be restricted only to those questions which have been argued and decided by the Tribunal. Sometimes, a question of law is raised before the Tribunal but an aspect of that question is neither raised nor decided. In such circumstances, other aspect of the same question can be allowed to be urged before the High Court. Therefore, the question whether the loans were advanced to a registered shareholder or not, which was only one aspect of the applicability of Section 2(6A)(e) of the Act, could be entertained and dealt with by the High Court in the reference even though it was not urged before the Tribunal"
(ii) The Hon'ble Supreme Court in the case of CIT v. Mahalaxmi Textile Mills Ltd. (1967) 66 ITR 710 (SC) laid down the law on the point as under at pp. 712 & 713:
"By the first question the jurisdiction of the Tribunal to allow a plea inconsistent with the plea raised before the departmental authorities is canvassed. Under Sub-section (4) of Section 33 of the Indian IT Act, 1992, the Tribunal is competent to pass such orders on the appeal "as it think fit". There is nothing in the IT Act which restricts the Tribunal to the determination of questions raised before the departmental authorities. All questions whether of law or of fact which relate to the assessment of the assessee may be raised before the Tribunal. If for reasons recorded by the departmental authorities in rejecting a contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the departmental authorities, and the Tribunal, and indeed they would be under a duty, to grant that relief. The right of the assessee to relief is not restricted to the plea raised by him."
(iii) The Hon'ble Bombay High Court in the leading case of J.S. Parkar v. V.B. Palekar and Ors. (1974) 94 ITR 616 (Bom) after following the decision of Hon'ble Supreme Court in (1967) 66 ITR 710 (SC) (supra) held at p. 661 of the report as under:
"It was been held by the Supreme Court that there is ample jurisdiction in the Tribunal to allow any new question to be raised for the first time in appeal before it and if necessary to remand the matter for investigation calling for fresh facts. In the instant case, no fresh facts appear to be required for the purpose of considering the plea which was raised by the petitioner that he should be granted relief by way of set-off. The Tribunal was, therefore, in my view, in error in holding that it could not do so without investigating fresh facts which it did not even care to outline."
(iv) The Hon'ble Supreme Court in the case of National Thermal Power & Co. Ltd. v. CIT (1998) 229 ITR 383 (SC) following its own earlier decision in the case of Jute Corporation of India v. CIT (1991) 187 ITR 688 (SC) laid down at p. 387 as under:
"The view that the Tribunal is confined only to issues arising out of the appeal before the CIT(A) takes too narrow a view of the powers of the Tribunal [vide e.g. CIT v. Anand Prasad (1981) 128 ITR 388 (Del), CIT v. Karamchand Premchand (P) Ltd. (1969) 74 ITR 254 (Guj) and CIT v. Cellulose Products of India Ltd. (1985) 151 ITR 499 (Guj) (FB)]. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee."
(v) The Hon'ble Kerala High Court in the case of CIT v. Motor Industries Co. Ltd. (1998) 229 ITR 137 (Ker) in para B at p. 138 of report laid down as under:
"Appeal to CIT(A)--Powers of CIT(A)--Assessment not made under Section 143(1)--CIT(A) can permit assessee to claim deduction not claimed before ITO when relevant materials are on record--IT Act, 1961, Sections 143, 246."
(vi) The Hon'ble Rajasthan High Court in the case of Shilpa Associates v. CIT (2003) 263 ITR 317 (Raj) laid down as under:
"Thus, the limitation is provided only for the purpose of filing the appeal. Once the appeal is filed within the limitation, the memo of appeal can be amended as per the practice and procedure. The view does not require any precedent to support. If it is required, even for cosmetic purposes; learned counsel has referred to a decision of the Madras High Court in J.D.B. Srinivasam v. Secretary to the Government of Tamil Nadu (1994) 92 STC 631. In the said case, the Court held that since the filing of additional grounds was a part of the continuous process of filing the appeal and the appeal having been filed in time, the additional grounds which could not be put forth before the lower authority or along with the appeal. The Court further observed that there was no time-limit for filing additional grounds, nor was there a rigid rule in that regard. We are in complete agreement with the view expressed by the Madras High Court."
(vii) The Hon'ble Punjab and Haryana High Court in the case of Vijay Kumar Jain v. CIT (1975) 99 ITR 349 (P&H) held as under:
"The matter has been put beyond any doubt by the Supreme Court in CIT v. Kurban Hussain Ibrahimji Mithiborwala, wherein it is observed :
'It is well settled that the ITO's jurisdiction to reopen an assessment under Section 34 (it is equivalent to Section 147) depends upon the issuance of a valid notice (now Section 148). If the notice issued by him is invalid for any reason the entire proceedings taken by him would become void for want of jurisdiction'.
It is axiomatic that what is void is non est. In this situation, the assessee was not precluded from urging the grounds Nos. 2 to 5. By giving them up the assessee could not confer jurisdiction on the ITO where he had none. Therefore, the Tribunal was bound to hear the assessee and could not reject the appeal on the ground that grounds Nos. 2 to 5 were not agitated before the AAC and thus could not be permitted to be agitated before it.".
(viii) The Hon'ble Tribunal, Jodhpur Bench in the case of Naresh Kumar Ajmera v. ITO has held at pp. 425 and 426 as under:
"It is observed that the assessee has not raised the above grounds before learned CIT(A) disputing the trading addition in ground No. 1, raised before the learned CIT(A). However, considering that the assessee has raised legal issue in the additional ground, which goes to the root of the matter in dispute and keeping in view the settled legal position that such legal objection can be raised at any stage of the appellate proceedings. We admit the additional ground raised by the learned counsel for the assessee."
6. On the other hand, learned Departmental Representative Shri D.R. Zala has controverted the request of the learned Authorised Representative, by stating that the ground cannot be admitted now, even though it is a legal ground and does not require further investigation of facts, because the matter has travelled upto Hon'ble High Court and again has come to Tribunal after restoration of the same.
7. After careful consideration of the matter, we are convinced that this ground is a purely legal ground and can be disposed of on the basis of the available evidence and facts and no further investigation is required for that matter. The objection of the learned Departmental Representative is also not tenable in the facts and circumstances of this case. The Hon'ble High Court has restored this matter with a direction to follow the decision of Shaw Wallace & Co. Ltd. v. CIT (supra). The relevant portion of the above Supreme Court decision is being reproduced below for ready reference:
"The Tribunal to hear the appellant's appeal against the block assessment order dt. 28th Nov., 1997. It is clarified that it is open to the appellant to raise all contentions which are available to it in law. The Tribunal will dispose of the appeal without being influenced by any observations made in the order of the Tribunal dt. 22nd April, 1998, or 1st June, 1999, and the order of the High Court dt. 17th Nov., 2000."
8. According to Shaw Wallace & Co.'s decision, the appellant can raise all contentions which are available to it in law. This contention raised by the assessee is definitely and undisputedly available to the appellant as per law, In view of the above, we allow this additional ground as ground No. 7. We find support from the decisions relied by learned Authorised Representative and discussed above. Having admitted this additional ground, the parties concur that this ground should be disposed of after dealing it as a preliminary ground, as the plea raised by this ground goes to the very root of the matter and in case this ground of appeal is accepted by the Tribunal, there will be no need to decide other grounds of appeal.
9. The learned Authorised Representative states that the order passed under Section 158BD of the Act on 28th March, 2001 and which is a base and foundation of this whole matter, is itself time barred and as such hit by the provisions of Section 158BE(1)(a) and on that basis the assessment order is liable to be quashed.
10. In support of this additional ground of appeal, the learned Authorised Representative Shri U.C. Jain submits that as per the provisions of Section 158BE(2)(a), the AO is competent to pass an assessment order within a period of one year from the end of the month in which notice under Section 158BD was served on the assessee, where the search was initiated prior to 1st Jan., 1997.
11. The learned Departmental Representative strongly contested the above proposition and submission made by the learned Authorised Representative. The only dispute hinges around the word "initiation of search". According to learned Authorised Representative the initiation of search takes place on the date which search warrant was issued by the competent authority and this date was 30th Dec., 1996. The search warrant was executed on 3rd Jan., 1997 and the AO was competent to pass an order within one year of the date of service of notice under Section 158BD.
12. The learned Authorised Representative's contention is that from the copy of panchnama of both coparceners against whom search warrants were issued on 30th Dec., 1996, there is no doubt that the search was initiated on 30th Dec., 1996. From assessment order, it is clear that notice under Section 158BD of the Act was issued on 8th March, 1999 and served on 15th March, 1999 the assessment was completed on 28th March, 2001. The assessment order passed under Section 158BD r/w 158BC on 28th March, 2001 is clearly time-barred because it is passed after the expiry of one year from the end of month in which notice under Section 158BD was served.
13. On the other hand, the learned Departmental Representative Shri D.R. Zala has submitted that the block assessment order in question is within allowed time. The learned Departmental Representative has contended that the word 'initiation' used in Section 158BE(2)(a) implies the date of initiation of search, which is 3rd Jan., 1997, and not the date of authorisation of search warrant.
14. We have circumspectiously treaded through the learned arguments as advanced from both the sides. We have carefully gone through the relevant provisions of the law and the decisions relied before us.
15. Before setting the controversy at rest regarding 'initiation' of search in this case, we would have to revert back to the relevant provision of the Act and the related decisions thereto. The decision of date of Initiation' assumes ominous overtures in this context, because this will decide as to whether the assessment order in question is within or beyond limitation.
16. There is no dispute that the search warrant was authorised by the designated authority after recording satisfaction and issued the warrant of search on 30th Dec., 1996. This warrant was executed on 3rd Jan., 1997. The learned Authorised Representative states the 'initiation' took place on 30th Dec., 1996 but the learned Departmental Representative states that this 'initiation' took place on 3rd Jan., 1997.
17. Section 158BE(2) is reproduced for ready reference:
"(2) The period of limitation for completion of block assessment in the case of the other person referred to in Section 158BD shall be--
(a) one year from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of accounts or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997; and
(b) two years from the end of the month in which the notice under this Chapter was served on such other person in respect of search initiated or books of account or other documents or any assets are requisitioned on or after the 1st day of January, 1997."
For substantiating his view the learned Authorised Representative has relied on the following decisions:
(i) Decision of Hon'ble Supreme Court in the case of D.M. Manasvi v. CIT (1972) 86 ITR 557 (SC). In this case, the Hon'ble Supreme Court while dealing with initiation of penalty proceedings held as under at pp. 561-562 of the report :
"The fact that notices were issued subsequent to the making of the assessment orders would not, in our opinion, show that there was no satisfaction of the ITO during the assessment proceedings that the assessee had concealed the particulars of his income or had furnished incorrect particulars of such income. What is contemplated by Clause (1) of Section 271 is that the ITO or the AAC should have been satisfied in the course of proceedings under the Act regarding matters mentioned in the clause of that sub-section. It is not, however, essential that notice to the person proceeded against should have also been issued during the course of the assessment proceedings. Satisfaction in the very nature of things precedes the issue of notice and it would not be correct to equate to the satisfaction of the ITO or AAC with the actual issue of notice. The issue of notice is a consequence of the satisfaction of the ITO or the AAC and it would, in our opinion, be sufficient compliance with the provisions of statute if the ITO or the AAC is satisfied about the matters referred to in Clause (a) to (c) of Sub-section (1) of Section 271 during the course of proceedings under the Act even though notice to the person proceeded against in pursuance of that satisfaction is issued subsequently. We may in this context refer to a decision of five judges Bench of this Court in the case of CIT v. S.V. Angidi Chettiar. Shah J, speaking for the Court, while dealing with Section 28 of the Indian IT Act, 1922, observed:
"The power to impose penalty under Section 28 depends upon the satisfaction of the ITO in the course of proceedings under the Act; it cannot be exercised if he is not satisfied about the existence of conditions specified in Clause (a), (b) or (c) before the proceedings are concluded. The proceedings to levy penalty has, however, not to be commended by the ITO. Satisfaction before conclusion of the proceedings under the Act, and not the issue of a notice or initiation of any step for imposing penalty is a condition for the exercise of the jurisdiction."
We are also not impressed by the argument advanced on behalf of the appellant that the proceedings for the imposition of penalty were initiated not by the ITO but by the IAC when the matter had been referred to him under Section 274(2) of the Act. The proceedings for the imposition of penalty in terms of Sub- section (1) of Section 271 have necessarily to be initiated either by the ITO or by the AAC. The fact that the ITO has to refer the case to the IAC if the minimum imposable penalty exceeds the sum of rupees one thousand in a case falling under Clause (c) of Sub-section (1) of Section 271 would not show that the proceedings in such a case cannot be initiated by the ITO. The ITO, in such, an event can refer the case to the IAC after initiating the proceedings. It would, indeed, be the satisfaction of the ITO in the course of the assessment proceedings regarding the concealment of income which would constitute the basis and foundation of the proceedings for levy of penalty."
(ii) Decision of Hon'ble Rajasthan High Court in the case of Phusraj Gangabishan v. CIT (1985) 151 ITR 628 (Raj) following the decision of Hon'ble Supreme Court in the case of DM. Manasvi held at pp. 633 and 634 of the report as under:
"In the present case, the ITO during the course of assessment proceedings felt satisfied that there was concealment of income and that inaccurate particulars were furnished by the assessee. After arriving at the aforesaid satisfaction, while passing the assessment order on 14th April, 1967, the ITO directed that notice under Section 271(1)(c) r/w Section 274 be issued to the assessee. He, thereafter, referred the proceedings to the IAC who also issued a notice to the assessee under Section 274(1) to show cause why penalty, should not be imposed upon him. Thus, in our view, the proceedings were properly initiated by the ITO and then referred to the IAC because the minimum penalty imposable would have exceeded Rs. 1,000.
We, therefore, hold that the penalty proceedings were properly initiated in the present case. The question referred by the Tribunal, Jaipur Bench, Jaipur, is answered in the affirmative and in favour of the Department and against the assessee."
(iii) Decision of Hon'ble Supreme Court in the case of Central Provinces Manganese Ore Co. Ltd. v. ITO (1991) 191 ITR 662 (SC) has stated that the ITO, in initiating proceedings under Section 147(a) and in recording reasons therefor, has relied upon the fact as found by the customs authorities that the appellant had under-invoiced the goods it exported. Further, the appellant did not produce the books of account kept by it at its head office in London nor the original contracts of sale which were entered into at London with the buyers, On these facts, it has been held that both the conditions required to attract the provisions of Section 147(a) have been complied with and, therefore, the initiation was justified.
(iv) Artisan Press Ltd. v. ITAT (1958) 33 ITR 670 (Mad), 673 last line to 674 :
"Based on above, the appellant humbly submits that, the time limit available to the AO under Section 158BE(2) was only one year from the date of issue of notice under Section 158BD on 8th March, 1999 as the case of the appellant falls in Clause (a) of Section 158BE(2). Since the date of initiation of search as per the authorisation in the search warrant was 30th Dec., 1996 (i.e., before 1st Jan., 1997).
Hence, the order passed under Section 158BD r/w Section 158BC on 28th March, 2001 is barred by limitation and the assessment done is, therefore, bad in law."
18. The learned Departmental Representative has filed a written statement ostensibly drafted by learned CIT, Departmental Representative from Jaipur, wherein he has vehemently submitted that the decisions relied by learned Authorised Representative are not applicable to the present case and are distinguishable. He has given in detail the meaning of the word 'initiation'.
19. The undisputed facts of this case are that the warrant of authorisation was signed by DIT on 30th Dec., 1996 and the search was carried out on 3rd Jan., 1997. The position of law regarding time available for computation of block assessment was changed from 1st Jan., 1997. The searches carried out upto 31st Dec., 1996 are governed by the provisions of Sections 158B(1)(a) and 168BE(2)(a) for completing the block assessment under Sections 158BG and 158BD respectively. The time limit of one year is increased to two years as per the provisions of Section 158BE(1)(b) and 158BE(2)(b) for block assessments under Sections 158BC and 158BD respectively.
20. This appeal was earlier disposed of by the Tribunal along with the Department's appeal No. 406/JU/2000 by order dt. 27th Feb., 2002. Against this order of the Tribunal, the assessee preferred an appeal before the Hon'ble Rajasthan High Court under Section 260A of the IT Act, 1961 (hereinafter referred to as 'the Act'). The appeal was admitted by the Hon'ble High Court on 1st Dec. 2002 and the following questions of law were framed:
"(i) Whether, in the facts and circumstances of the case, remission of income on the basis of regular books of accounts found during the search could be sustained with reference to the provisions of Section 145 of the IT Act, 1961, which has been made retrospectively applicable to the block assessment w.e.f. 1st July, 1995, but which provisions were not applicable at the time of making of the block assessment without there being compliance of the requirement of Section 145 before resorting to best judgment assessment?
(ii) Whether in taking resort to the block assessment for the block of 10 assessment years in question, income for the asst. yr. 1997-98, return for which has not fallen due, could be included in the block period for the reason that return for that assessment year has not been filed?
(iii) Whether block assessment made by assessing authority as modified by Tribunal can be sustained in view of the amended Clause (c) of Section 158BB of the IT Act, 1961 as inserted by the Finance Act, 2002, w.e.f. 1st July, 1995?
(iv) Whether, in the facts and circumstances of the case, there was any foundation for resorting to best judgment assessment?"
21. The Hon'ble High Court finally disposed of the appeal by order dt. 16th July, 2003 by restoring the matter back to the Tribunal following the decision of the Hon'ble Supreme Court in Shaw Wallace & Co. v. CIT (supra) and gave direction to the Tribunal to dispose of this appeal within three months from the date of receipt of this order. The order of the Hon'ble High Court is short and we would like to reproduce verbatim for the sake of guidance and ready reference:
"It appears that both the parties concurred that the ratio of the decision of the Hon'ble Supreme Court rendered in Shaw Wallace & Co. v. CIT (2003) 129 Taxman 542 (SC) applies to the facts of this case and the Hon'ble High Court gave the following directions to the Tribunal while restoring the matter back to Tribunal in para 2 of the order :
"The Tribunal to hear the appellant's appeal against the block assessment order dt. 28th Nov., 1997. It is clarified that it is open to the appellant to raise all contentions which are available to it in law. The Tribunal will dispose of the appeal without being influenced by any observations made in the order of the Tribunal dt. 22nd April, 1998, or 1st June, 1999, and order of High Court dt. 17th Nov., 2000."
22. The decision of the. Hon'ble Supreme Court in Shaw Wallace & Co. Ltd. v. CIT (supra) is a small judgment. In para 2 of this order which we are reproducing below, the Hon'ble Supreme Court has clarified that:
"It was open to the appellant to raise all contentions which are available to it in law and the Tribunal will dispose of without being influenced by any observations made in the earlier order of the Tribunal dt. 22nd April, 1998 or 1st June, 1999, and the order of the High Court dt. 17th Nov., 2000."
23. The learned Authorised Representative Shri U.C, Jain has submitted that the proceedings for search is initiated on the day when the designated authority records the satisfaction and signs the warrant of authorisation. For this submission, he has heavily relied on the Hon'ble Supreme Court decision in the case of DM. Manasvi v. CIT (supra) wherein the Hon'ble Supreme Court has dealt with the initiation of penalty proceedings and has also relied on the Hon'ble Jurisdictional High Court in the case of Phusraj Gangabishan v. CIT (supra) wherein the above Hon'ble Supreme Court decision has been followed. In the light of these submissions, the learned Authorised Representative has submitted that the time limit available to the AO under Section 158BE(2) was only one year from the date of issue of notice under Section 158BD on 8th March, 1999 as the case of the appellant falls in Clause (a) of Section 158BE(2). Since the date of initiation of search as per the authorisation in the search warrant was 30th Dec., 1996, i.e., before 1st Jan., 1997. So, according to him, the order passed under Section 158BD r/w Section 158BC on 28th March, 2001 is barred by limitation and the assessment done is, therefore, bad in law.
24. On the other hand, the learned Departmental Representative Shri T.R. Chawla has submitted that the Expln. 2 to Section 158BE brought to the statute book by the Finance (No. 2) Act 1998 with retrospective effect from 1st July, 1995 that the execution of authorisation means conclusion of search by recording last panchnama drawn on the basis of warrant of authorisation issued. According to the learned Departmental Representative, this Explanation clarifies the initiation of search and the conclusion of search. The search and seizure action is considered as commenced when the search is initiated by the authorised officers by executing the warrant of authorisation and conclusion of search and seizure operation is from the last panchnama drawn, This Explanation deals with the initiation of search and the conclusion of the same. The learned Departmental Representative has further submitted that the decision relied by the learned Authorised Representative which is in relation to the initiation of proceedings under Section 147(a) and 271(1)(c) which are not applicable in the present case. According to the learned Departmental Representative, no search action can be initiated unless warrant of authorisation so issued by the competent authority to initiate search action by execution of same is served on the concerned person. So, according to him, initiation of search means the actual carrying out of the search and seizure operation and the conclusion of the same is vital factor for, determining the time limit.
25. In the case of search under Section 132 of the Act, the authority which issues warrant under Section 132 has to satisfy itself about the applicability of the conditions outlined in Section 132(1)(a), (b) and (c) of the Act. Once the authority is satisfied, then the warrant is issued authorising the lower authorities to actually execute the warrant and conduct the search. The issue of authorisation warrant is the first step for conduct of search would mean initiation of search. Explanation 2 which was inserted by the Finance (No. 2) Act 1998 with retrospective effect from 1st July, 1995 which reads as under;
"In this section, the word 'proceeding' means any proceeding in respect of any year, whether under the Indian IT Act, 1922 (11 of 1922) or this Act which may be pending on the date on which a search is authorised under this section or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year.
For removal of doubts, it is hereby declared that the authorisation referred to in Sub-section (1) shall be deemed to have been executed :
(a) In the case of search, on the conclusion of search as recorded in the last Panchnama drawn in relation to any person in whose case warrant of authorisation has been issued."
[Note : The first quoted matter is Expln. 2 to Section 132 and not Expln. 2 to Section 158BE Expln. 2 to Section 158BE starts from "For removal........"--Ed.]
26. The reading of the above Explanation makes it clear that the execution of the warrant means conclusion of a search as recorded in the last Panchnama. Execution of warrant is that the premises sought to be search is initiated and search is commenced based on the warrant of authorisation already obtained. To settle as to what is the meaning of "initiation" and when exactly the initiation took place in this case, we have to revert to the various definitions and decisions. The Hon'ble Madras High Court in the case of J.D.B. Srinivasan v. Secretary to the Government of Tamil Nadu (1994) 92 STC 631 and another case (1958) 33 ITR 670 (Mad) (supra) has held that "to initiate means to originate or to take first step". Likewise, the Hon'ble Calcutta High Court has held in the case of Nilesh Hemani v. CIT (1999) 239 ITR 517 (Cal), particularly at p. 522 that "such proceeding was initiated when the search warrant was signed". The Hon'ble Kerala High Court has held in the case of T.O. Abraham & Co. and Anr. v. Assn. Director of IT (1999) 238 ITR 501 (Ker) at p. 504 that "the execution means only completion, conclusion or implementation of authorisation and not the date of issue of authorisation. Again, the Hon'ble Kerala High Court in the case of T.O. Abraham (supra) held that "In all cases where search is initiated prior to 1st Jan., 1997, jurisdiction would lie with the Tribunal". Meaning thereby, the initiation would start from the authorisation of warrant. The Calcutta Bench of the Tribunal in the case of Nirmal Gosh v. Dy. CIT (2002) 77 TTJ (Cal) 869 : (2002) 82 ITD 788 (Cal) has come to the conclusion that initiation means the action taken and would not mean the end result taken under the authorisation.
27. But in the case of this appellant, books of accounts were seized under Section 132(1) on 3rd Jan., 1997. The words appearing in Section 158BE(2)(b) are "books of account requisitioned". So the date of books of accounts seized is 3rd Jan., 1997. So, the period of limitation would be 2 years in this case. The case laws relied by learned Authorised Representative are distinguishable.
28. In view of the matter and our above findings, the assessment order in question is within limitation. The additional ground of appeal is dismissed.
29. On merits, the relevant facts are as under:
30. As stated above, a search under Section 132 of the Act was conducted on 3rd Jan., 1997 at the business and residential premises of Shri Rameshwarlal Soni and Shri Suraj Prakash Soni, sons of Shri Mangi Lal Soni, Goldsmith, Sunaron Ka Bas, Jodhpur. During the course of search, jewellery, cash and other valuables, books of accounts for the period during the calendar year 1986 upto 1996 (from 1st Jan., 1996 to 20th Oct., 1996) were found at the residential premises of Shri Rameshwarlal Soni and Shri Suraj Prakash Soni. These books were related to the joint business of the brothers, the business in question was continued after the death of their father in 1986. Until his death, Late Shri Mangilal Soni was doing the business along with his two sons Shri Rameshwarlal Soni and Shri Suraj Prakash Soni. From 20th Oct., 1996 these two brothers separated their business and started independently thereafter. It is the claim of the assessee that from 1986 to 20th Oct., 1996 the business carried out by the two brothers actually belonged to M/s Mangilal Rameshwarlal (HUF). After the search, proceedings under Section 158BD of the Act were initiated against M/s Mangilal Rameshwarlal Soni (HUF) Sunaron Ka Bas, Jodhpur by sending a notice dt. 8th March, 1999. The details of the books of accounts relevant to M/s Mangilal Rameshwarlal Soni (HUF) according to books of accounts found and seized from the residence of Shri Rameshwarlal Soni and Shri Suraj Prakash Soni are given below:
Shri Rameshwarlal Soni:
A-12 Ledger 1.1.86 to 31.12.1986 Pages 1 to 86
A-5 Ledger 1.1.1987 to 22.12.1987 Pages 1 to 148
A-3 Ledger 1.1.1989 to 31.1.1990 Pages 1 to 189
A-4 Ledger 3.1.1990 to 13.2.1991 Pages 1 to 213
ii
A-10 Ledger 1991 Pages 1 to 217
A-11 Ledger 1992 Pages 1 to 226
A-7 Ledger 1993 Pages 1 to 224
A-9 Ledger 1994 Pages 1 to 189
A-12 Ledger 1995 Pages 1 to 199
A-13 Ledger 1996 Pages 1 to 171
A-14 Ledger 20.10.1996 to 1.1.1997 Pages 1 to 52
Corresponding Ledger
A-5 Diary (Cash Book) 1.1.1993 to 31.12.1993 A-7
A-6 Diary (Cash Book) 1.1.1994 to 31.12.1994 A-9
A-l Diary (Cash Book) 1.1.1995 to 31.12.1995 A-12
A-2 Diary (Cash Book) 1.1.1996 to 21.10.1996 A-13
31. In response to notice under Section 158BD dt. 8th March, 1999 which was served on assessee on 15th March, 1999, the assessee filed returns in Form No. 2B for different years which is as under :
Previous year (Chronologically) Assessment year Undisclosed income Returned/Assessed income 1st (earliest) 1987-88 Nil Return not filed below taxable limit 2nd 1988-89 Nil
-do-
3rd 1989-90 Nil do-
4th 1990-91 Nil
-do-
5th 1991-92 36,040 6th 1992-93 54,950 7th 1993-94 63,210 8th 1994-95 4,802 9th 1995-96 50,410 10th 1996-97 1,27,340 11th (latest) upto 3. 1.1997 1997-98 61,780 Total 4,41,750 Total undisclosed income of the block 4,41,750 Tax Payable 2,65,750 Tax paid under self assessment on 19.10.2000 2,65,050
32. The base for filing of return in Form No. 2B was receipts for job charges including that of pearls and naginas, etc. and interest from money lending and the assessee adopted the method of excluding the cost of pearls and naginas from the job charges calculated by him and reducing therefrom salaries and shop expenses, etc. The assessee's case is that the HUF derived income from manufacturing of gold ornaments on the basis of advances received at the time of placing of the order or on providing of gold for manufacturing of the ornaments. In addition to this, the HUF also earned income from interest on pledging of gold or silver ornaments. It is undisputed fact that receipts were not credits or deposits received by assessee but the Department observed that the assessee was not in a position to give the details about the purchase of gold, its quantity and its use in manufacturing process so the accounts version of the assessee is not verifiable for arriving at the income of the assessee. It is also mentioned by the Department that leading jewellers sometimes make gold ornaments out of funds available with them and sell them in the market and such sales are not shown in the books of account. So the sale proceeds from such transactions would have been utilised in the day-to-day shop expenses of the assessee.
33. The assessee stated before the Department that the gold is purchased from dalals or commission agents who come to the shop or individuals but the names of the persons from whom the gold is purchased is not written. When the assessee was asked by the Department that the rate of pure gold is charged for ornaments but while preparing and delivering gold ornaments the purity of 20 to 22 carats as per practice in the trade. The assessee had stated that normally old gold ornaments having 22 carats purity is purchased and same is melted to form new ornaments. The alloy of silver, gold and copper is used for welding of ornaments and that is hardly 1 to 1-1/4 per cent of the weight of ornaments and to this extent chheejat, shortage of gold ornaments also occur. The rates prevailing on which the purchase of old gold ornament is made is sold at the same rate and that rate is charged from the customer and only job work income is earned by the assessee. The Department also was of the view that this submission of the assessee is not verifiable as the rates at which gold ornaments purchased is not mentioned in the entries relating to purchase of gold/gold ornaments and only consolidated figure of purchase price is mentioned. So the AO concluded that the return of income filed by the assessee in form 2B is not based on facts and realities of the case because the assessee had not kept the details and rough notes of the receipts shown in the return of income in form 2B which was necessary for getting necessary verification. The AO pointed out various defects as mentioned below:
(i) The assessee has not added the income from nag powai, nag setting, dori bandhai, etc.
(ii) That for the calendar year 1986-87 to 1991-92 the assessee did not maintain any cash book but in the so called job and P&L a/c prepared by the assessee on the basis of which the assessee has filed the return of income in form No. 2B the assessee has claimed allowances on account of salary paid to helper, shop expenses, etc. A.Y. Job charges + Cost of pearls Cost of pearls Net receipts Salary Shop expenses Net profit including interest 1987-88 98,545 48,413 50,132 13,600 22,349 14,183 1988-89 1,10,978 42,174 68,804 23,000 28,800 17,004 1989-90 1,17,683 53,184 64,499 23,000 30,800 10,699 1990-91 1,62,832 69,619 93,213 , + 1,500 (intt.) 36,000 41,100 17,613 1991-92 2,00,638 86,224 1,14,414 + 7,730 (intt.) 38,000 48,100 36,044 1992-93 3,14,210 1,53,929 1,60,281 60,000 59,900 54,946 1993-94 3,21,357 1,79,173 1,42,184 60,000 62,300 63,214 It has been stated that the expenses on account of salary, wages and shop expenses are on estimate basis for the calendar years 1986 to 1992. This looks totally baseless because in the absence of any record how can the figures of expenses on salary, wages and shop expenses for earlier years can be calculated and claimed. Thus, the assessee's submissions that the accounts have been furnished from the books of accounts found and seized during the course of search get belied in itself.
(iii) No drawings by the coparceners of the HUF have been shown for any of the assessment year covered in the block period upto calendar year 1992 which makes the assessee's version of giving true account of the income and accounts particulars stands exposed.
(iv) The assessee has not maintained vouchers and bills of sales, purchases and expenses, in the absence of which purchases, sales, expenses and as such income is not verifiable.
(v) The records as to from where the sales and purchases made and the quantum of gold and silver given to the labour of outside agency for getting the particular job of goldsmith work got done as stated by the assessee."
34. After going though these defects the AO observed that the ledger in the seized records show the receipt on account of majdoori hardly 5 per cent of the total receipts of gold ornaments or silver ornaments etc. The AO was of the opinion that no goldsmith will ever remain contented with this income in the shape of majdoori only. He further observed that the goldsmith does earn in the shape of gold which is saved by him on account of mixing of alloys in the gold and silver ornaments. According to the AO the goldsmiths charge for 24 carats of gold purity whereas the purity in gold ornaments is ranging between 20 to 22 carats normally. For polish etc. extra charges are taken. The wastage in the process of manufacturing of gold articles is very nominal and in no way less than 12 per cent of total gold manufactured is kept by the goldsmith as a hidden profit with him. The assessee has not kept any record of giving the gold to karigars for making gold ornaments or receipt of gold ornaments after finishing of a particular job. So, in the absence of that the verification of availability of gold cannot be ascertained and there is no other alternative but to charge to tax the undisclosed income to the assessee in the shape of gold saved on account of impurities to the extent of 12 per cent as stated above. In addition to this on account of profit from the naginas the moti charged from customers after purchasing the same from market earnings are made. He was also of the opinion that goldsmiths do purchase the old gold ornaments at a considerably low rate by stating the purity of those ornaments at a lesser value than the actual. The assessee has not been able to give the details of the persons from whom gold has been purchased, supports the view that some of the gold has been purchased from smugglers at a much lesser rate than the market price or the price at which the ornaments are sold. So the AO. added to the profit of total transaction recorded in the books to the tune of 20 per cent by adding majdoori about 5 per cent impurity about 12 per cent and 3 per cent on account of income from nagina and moti and direct gold purchase from smugglers, etc. As a result, the AO made various addition for all these years.
35. On the other hand the case of the assessee is that it is involved in the order based in making of gold ornaments/items. The gold required for this purpose is either bought from the market or the gold deposited by customers themselves is melted and utilised. In both the cases the rate of gold is as existing on the day when the order is placed by the customer. The appellant does not have a show room, and nothing is manufactured without a specific order, and thus, no ready stock, which does not belong to any customer, would ever be available with the appellant. To fortify this submission, the learned Authorised Representative has submitted that this is the reason this manufactured gold jewellery meant for sale was not found at the time of the search proceedings at the appellant's premises. The appellant maintains books of accounts in the form of customer's ledger and cash book, which is enough for depicting the true income earned by the appellant. The source of income of the appellant, from the activity of making gold and silver ornaments is, in the form of "job charges" charged by the appellant, on the basis of weight and the designs of the ornament made. The gross charges received by the appellant, during the block period have been fully disclosed in the returns filed by the assessee, and the total gross receipts are also not disputed by both the AO and the learned CIT(A). The AO while computing the income of the appellant for the block period, pointed out the various defects in the books maintained by the appellant, and thereafter estimated the income of the appellant without regards to the nature of business of the appellant and the explanation offered by the appellant. The AO computed the income of the appellant thereby making an addition of Rs. 1,33,54,717 in the income from job work, by applying a flat rate of 20 per cent on the total amount credited in the customers account. While estimating the above income at 20 per cent. the AO on hypothetical and imaginatory ground, presumed an income of 12 per cent on account of mixing and melting, 5 per cent as majdoori or labour charges and 3 per cent on account of profit presumed to be earned by the appellant from difference while debiting the gold price, the nag powai, dori bandhai, etc., to the account of the customers. The learned CIT(A), while giving specific findings as regards each defect pointed out by the AO as erroneous, and accepting the claim of the appellant, erred in giving an incorrect conclusion, which though lead to a substantial relief but, confirmed the basis of estimation of the AO, which was formed on hypothetical and imaginary grounds. The relief given by the learned CIT(A) was to the extent that he reduced the percentage from 20 to 5 per cent. as income of the appellant from job work. The learned Authorised Representative has disputed the very basis of the estimation applied by the AO and confirmed by the learned CIT(A).
36. We have heard the rival submission and perused the evidence on record. We give our finding on this issue as below,
37. This finding of ours will dispose of ground Nos. 1 to 3 of the appeal of the assessee and ground No. ii of the appeal of Revenue which arise out of common facts.
38. Undisputedly this is a case of search as per the amended law, which is applicable with retrospective effect from 1st July, 1995 made in Section 158BB of the Act. Any document, etc. found during the course of search and any evidence relatable to such evidence found during the course of search can be the basis of computation of income. But at the same time, it is well settled principle of law that in such search cases no estimation of income is permissible.
39. The Hon'ble Jurisdictional High Court in the case of CIT v. Rajendra Prasad Gupta (2001) 248 ITR 350 (Raj) has clearly held that in such cases, the income is to be computed on the basis of material seized during search proceedings and the AO is not conferred with the power to make estimation of income de hors of the material in his possession. The AO is justified in resorting to the best judgment assessment only if returns are not in accordance with the material on record.
40. In another decision of the Hon'ble Allahabad High Court, in the case of CIT v. Smt. Usha Tripathi (2001) 249 ITR 4 (All), the Hon'ble Allahabad High Court has come to the same conclusion. A plain reading of Section 158BB(i) of the Act makes it clear that the computation of the undisclosed income, if any, is to be based on :
(i) Evidence found as a result of search;
(ii) Requisition of books of accounts;
(iii) Such other material or information available with the AO.
41. In the instant case, the entire books of accounts were available with the AO and except these books of accounts, there was no material or information which was in the possession of the AO to show that the assessee had earned any income over and above the income shown in the books of accounts. The income could be estimated only keeping in view the above three types of evidence on record. In this case, to our opinion, the learned AO has estimated the income on hypothetical basis taking into consideration the over all nature of the business in question of the same and similar line of business without giving any example on record.
42. It is the fact that the labour charges by goldsmith on order basis are received with reference to the weight of the gold/silver ornaments manufactured as well as the design in question which involves a particular amount of labour. To that extent the learned CIT(A) has also accepted the plea of the appellant. But he has reduced the addition from 20 per cent to 5 per cent. The CIT(A) has rightly observed that the receipts from customers for working out the income of the appellant from labour charges, on account of retention of gold and on account of income from nagina setting, etc. is very very high and is not supported by any documentary evidence. It is revealed from the documents seized during the course of search that the appellant had recorded labour charges income from nagina setting and also had recorded cheejat wherever received.
43. So, in our opinion, the income estimated by AO and sustained to some extent by the learned CIT(A) is not borne out of the three types of evidence which are detailed above and available on record. So the act of the AO in estimating the income of the assessee at the rate of 20 per cent on receipts from customers is erroneous since there is no material/document suggesting any income other than that declared by the appellant found during the course of search. It is a fact that the books of accounts of the appellant were incomplete to the extent that various expenditure like salaries, electricity expenses, purchase of chemicals, telephone, conveyance, etc. which are bound to be incurred are not recorded in the books of accounts of the assessee. But the gross income from labour charges which is claimed to be the only source of income are fully recorded which is not disputed by the Department as well. In the case of the appellant, no undisclosed assets have been found as a result of search and further, the gross labour charges received by the appellant to the extent of Rs. 19,93,373 should be made a basis for computation of income, after allowing a reasonable amount for estimation of the gross income as declared by the appellant after allowing reasonable expenditure like salaries, telephone, c6nveyance, etc. which are necessary for earning such gross income.
44. For the estimation of net income after allowing the reasonable expenses the method nearest to the real state of affairs would be the estimation on the basis of assets/expenditure theory. The total assets disclosed are not disputed by the Department and no undisclosed assets have been found as a result of search. So, the net income for the block period from job charges and interest totalling at Rs. 5,01,240 declared by the appellant is duly supported by accretions and withdrawals made by the members of the HUF and as such, the income declared by the appellant should be accepted. The best judgment assessment is not a punitive assessment and one has to try and make a fair estimate nearer to the true affairs. An estimation based on assets and expenditure is obviously better than making a wild guess without backing of assets/expenditure particularly when the Department has no case of any asset remained undermined.
45. As a result we accept ground Nos. 1 to 3 of assessee's appeal and dismiss ground No. ii of the Department.
46. The only ground which remains to be disposed of is ground No. (i) of the Department's appeal which relates to deletion of addition of Rs. 5,50,559 on account of unexplained opening capital shown by the assessee in the first year of block assessment year without considering the fact that the assessee had not been assessed to tax and the accretion of capital to the extent of Rs. 5,50,559 was not verifiable from any reliable evidence.
47. The learned Departmental Representative Shri D.R. Zala has submitted that the appellant had shown opening capital for the asst. yr. 1997-98 (sic-1987-88) at Rs. 5,50,559 on the basis of ledger kept by it. According to the learned AO, the appellant had not been assessed to tax. According to the learned Departmental Representative, the appellant had not been assessed to tax and accretion of capital to that extent is not verifiable from any other record. So, the entire capital of Rs. 5,50,559 is taken to have been introduced in the accounting year relevant to the asst. yr. 1987-88. This amount is undisclosed income of the appellant for the asst. yr. 1987-88.
48. On the other hand, the learned Authorised Representative Shri U.C. Jain has submitted that the AO was not justified in making the addition of Rs. 5,50,559 on account of initial capital as on 31st Dec., 1985 which relates to the period beyond the block period, It cannot be treated as undisclosed income of the appellant from any stretch of imagination. The appellant is HUF and doing the business of goldsmith. The appellant had maintained ledger wherein it had recorded the details of work done, The appellant had recorded receipts of amounts, old gold ornaments received from customers, facts of return of gold ornaments to customers and other receipts on account of nagina setting and on account of cheejat. According to the learned Authorised Representative this amount of Rs. 5,50,559 was quite evident from such ledger and was the capital of the HUF as on 1st Jan., 1986. Block period for the purpose of ascertaining the undisclosed income starts from 1st April, 1986 and the capital related to the period much prior to the initial date of block period. So, the AO was not at all justified in making the addition on initial capital of undisclosed income despite the fact that the appellant had duly explained such opening capital as on 1st Jan., 1986 to the AO.
49. After careful consideration, we are of the opinion that when it is evident from the ledger found and seized during the course of search that the appellant had capital to the tune of Rs. 5,50,559 as on 31st Dec., 1985, prior to the block period, then this opening capital cannot be treated as undisclosed income of the assessee for asst, yr. 1987-88. In the light of our observations in relation to other grounds as well this addition is not justified.
50. In the result, this appeal of the assessee is partly allowed and the appeal of the Department is dismissed.